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Eaton Vance (EV) Gains on Year-Over-Year Earnings Growth

Shares of Eaton Vance Corp. (EV) rose nearly 3% following the release of its fiscal third-quarter 2014 (ended Jul 31) results. Adjusted earnings came in at 63 cents per share, up 21% year over year. However, earnings were in line with the Zacks Consensus Estimate.

Results benefited from growth in revenues, partially offset by elevated operating expenses. Additionally, consistent enhancement in assets under management (AUM.TO) as well as balance sheet continued to be the favorable factors.

Eaton Vance’s net income grew significantly over the prior-year quarter to $81.3 million.

Eaton Vance’s total revenue amounted to $367.6 million, up 5% year over year. The increase was primarily attributable to higher investment advisory and administrative fees as well as other revenues. However, these were partially offset by a fall in distribution and underwriter fees and service fees. Also, the figure was almost in line with the Zacks Consensus Estimate of $367.0 million.

Total expenses rose 2% year over year to $236.4 million. The increase was on the back of higher compensation, service fee expense, fund related expenses as well as other expenses. However, these were partly mitigated by lower amortization of deferred sales commissions.

Total operating income climbed 10% year over year to $131.2 million.

As of Jul 31, 2014, Eaton Vance had $362.0 million in cash and cash investments as compared with $461.9 million as of Oct 31, 2013. Further, the company had no borrowings outstanding against its $300 million credit facility.

As of Jul 31, 2014, long-term fund AUM summed $135.0 billion, up 5% year over year. Moreover, institutional AUM came in at $98.4 billion, reflecting a 10% increase from the year-ago quarter. Further, high net worth AUM rose 9% year over year to $20.9 billion while retail AUM totaled $33.8 billion, up 9% from the prior-year quarter.

Share Repurchase

During the first nine months of fiscal 2014, Eaton Vance repurchased nearly 6.0 million shares of its Non-Voting Common Stock for $227.9 million under its existing repurchase authorization. The company has a share repurchase authorization of 8.0 million, out of which around 7.2 million shares remain to be repurchased.

Our Take

Eaton Vance seems to be well positioned for growth given the company’s diversified revenue mix and footprint along with its sustainable AUM growth. Moreover, the company’s financials will likely be propelled further with the growing need for risk management and alternative investment solutions within the financial service industry.

However, we remain apprehensive about the unfavorable effects of the present capital market volatility as well as sluggish economic environment on the company’s profitability going forward.

Eaton Vance currently carries a Zacks Rank #3 (Hold).

Performance of Other Asset Managers

Among other investment management firms, The Blackstone Group L.P. (BX), BlackRock, Inc. (BLK) and Ameriprise Financial Inc. (AMP) surpassed the Zacks Consensus Estimate in their latest earnings releases. Their results were driven by top-line improvement, partially offset by escalating expenses. Further, all three companies have recorded impressive AUM growth.